Cell C reeling from flurry of body blows
SHOULD we be worried about Cell C? Despite a recent high court ruling that was at least partly in the mobile operator’s favour, noises coming out of the company aren’t exactly painting a rosy picture.
There are several reasons for concern, chief among them the ability of the company to engage in a protracted price war while ensuring it meets its debt covenants.
MTN’s aggressive move earlier this month to cut its prepaid rates to 79c/minute may have been designed not only to reverse customer churn to rivals, but also to inflict a painful — perhaps even fatal — body blow to Cell C.
It’s telling that Cell C has not responded to MTN’s move.
MTN’s new rate makes life very difficult for Cell C, whose only move in recent weeks has been to hike its prices. It has pushed up out-of-bundle data charges by a massive 560%, from 15c to 99c/MB.
CEO Alan Knott-Craig, who has not been at the helm since November when he suffered a stroke, had previously said that out-of-bundle
MTN has begun putting in the boot, urging customers to ‘move to the network that works’
data rates ought not to be higher than in-bundle charges because this simply punished loyal customers.
That the company has changed tack must raise questions about its financial position.
Investment analyst Nadim Mohamed of First Avenue Investment Management said in a recent interview with Business Day TV that he was “becoming very concerned” about Cell C’s ability to survive a price war. He said that in mid-2015, a debt covenant of R1.65-billion was due for payment. That must be focusing minds. “We think they need to be lower than 79c to maintain their market share and grow the size of their network, and I think it will become very difficult for them to remain relevant. Their business could very well be compromised by this move from MTN,” said Mohamed.
Another worry for Cell C is that although it has attracted new customers in the past two years — growing its share of active sim cards from 13% to about 17% — its share of revenue has not tracked this. That means it is picking up more low-value prepaid customers rather than bigspending consumers on contracts.
The company has also come under fire over the quality of its network, especially in Gauteng, where it has failed to invest sufficiently in infrastructure to cater for the users it was attracting with its lower prices.
Although Knott-Craig pledged millions of rands last year to upgrade the network to deal with congestion, the perception that it has a quality problem has stuck. MTN has begun putting in the boot, urging customers to “move to the network that works”.
Then there’s Knott-Craig himself. There has been no real news about the Vodacom founding boss since his stroke. Although Cell C has said he will make a full recovery, it’s far from clear whether he will return.
The fact that he has already suffered a number of major health scares suggests it’s unlikely he will continue as CEO.
Does that matter? Like him or loathe him (and he has plenty of detractors), Knott-Craig is a strong and capable leader who is admired by the people who work for him. At Cell C, he has injected fresh energy into a tired company.
A sense had emerged that the operator had a real shot at transforming itself.
What’s the future for Cell C? That depends on the appetite of controlling shareholder Oger Telecom in continuing to prop it up. Oger has been remarkably patient, but its patience must be wearing thin. If new call regulations being drawn up by communications regulator Icasa don’t extend the aggressive benefits it is enjoying now (at the expense of its bigger rivals), that could lead to major change.
France’s Orange is keen on South Africa. It could make a play for Cell C. So, too, could Telkom, although that seems less likely. The fixed-line operator has other challenges that need solving first, such as shoring up its shrinking fixed-line business.
However this plays out, Cell C’s day of reckoning could be closer than many think.
ý McLeod edits TechCentral.co.za. Find him on Twitter @mcleodd